Small Car Demand Keeps Prices High

Posted: April 28, 2008

Rising gas prices are increasingly pushing consumers into smaller cars, and with demand for small cars near all-time highs, they may now be growing more expensive.

The AP reports, "Small cars are now the largest segment of the U.S. auto market, accounting for 18 percent of new car sales. Last year U.S. consumers bought a record 2.8 million of them, and with sales up 4 percent in the first quarter this year, the record almost surely will be shattered."   The auto industry has been slow to react, and is only now ramping up production of the hottest-selling small cars.  Aaron Bragman, an auto analyst for the Waltham, Mass.-based consulting firm Global Insight, said the spike in small car demand "happened too rapidly for the American automakers to take sufficient action."

Bankrate.com comments that "consumers, who may have become accustomed to seeing thousands knocked out of the window sticker, may have to adjust their expectations" when they shop for smaller cars.  "Part of that tough negotiating stance comes from dealers recognizing that small, economical sedans are hot items. But another factor is that these sedans have far less profit built into them when compared to SUVs and bigger, luxury sedans."  As a result, dealers often don't have the flexibility to discount the cost of smaller cars as much as they did with the SUVs that many bought in recent years.  For instance, "a Toyota Corolla LE has a base list price of $16,650 and an invoice price of $15,067, leaving less than $1,600 haggle room for most consumers."  In contrast, "a Toyota Sequoia SUV, which lists for $35,275, has about $4,000 in negotiating room before hitting the dealer invoice."

A few bargains can still be found.  Kicking Tires rounds up cash-back offers on the market this week, and finds this surprising gem: $1,500 cash back on the Hyundai Elantra nationwide, except in certain Northeastern states.  "It’s not the most exciting to drive, but it comes well-equipped and has a much improved interior and exterior look. $1,500 is a huge amount of money to be taking off an economy car in today’s climate," KT comments. "Thrifty shoppers should definitely take advantage."

Research the value of current small cars with U.S. News' car rankings and reviews.